Thursday, October 06, 2011 8:39pm

Taxes

Question A: All else equal, permanently raising the federal marginal tax rate on ordinary income by 1 percentage point for those in the top (i.e., currently 35%) tax bracket would increase federal tax revenue over the next 10 years.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question B:

The cumulative budget shortfalls in the US over the next 10 years can be reduced by half (or more) purely by increasing the federal marginal tax rate on ordinary income for those in the top tax bracket.

Responses
 

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Responses weighted by each expert's confidence

Source: IGM Economic Experts Panel
www.igmchicago.org/igm-economic-experts-panel

Question A Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Strongly Agree 6
Disincentive effects on labor supply and entrepreneurship, and tax avoidance are likely, but not large enough to reduce revenues.
Bio/Vote History
         
Alesina Alberto Alesina Harvard Agree 8
Bio/Vote History
         
Altonji Joseph Altonji Yale Strongly Agree 9
The labor supply literature strongly suggests that the revenue gain from a higher rate will outweigh a small reduction in labor supply.
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Agree 8
Bio/Vote History
         
Autor David Autor MIT Strongly Agree 9
We are nowhere near the downward sloping side of the Laffer curve.
Bio/Vote History
         
Baicker Katherine Baicker Harvard Agree 7
Bigger question is what the economic cost would be, but unlikely to be so large that revenues would actually decline.
Bio/Vote History
         
Banerjee Abhijit Banerjee MIT --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Agree 8
Labor supply elasticity in this group is never huge and one percent will simply not be noticed unless there is a big hullabaloo about it.
 
Bertrand Marianne Bertrand Chicago Strongly Agree 5
Bio/Vote History
         
Brunnermeier Markus Brunnermeier Princeton --- ---
---
Bio/Vote History
Joined 11/2013 Agree 8
 
Chetty Raj Chetty Harvard Strongly Agree 10
Bio/Vote History
         
Chevalier Judith Chevalier Yale Strongly Agree 9
The behavioral response cannot possibly be big enough to wipe out the revenue gains.
Bio/Vote History
         
Currie Janet Currie Princeton Agree 8
There are many people in the top bracket, and while some would be able to change their behavior to offset the increased tax, not all would.
Bio/Vote History
         
Cutler David Cutler Harvard Strongly Agree 8
The elasticities are not that high.
Bio/Vote History
         
Deaton Angus Deaton Princeton Strongly Agree 8
This seems quite clear.
Bio/Vote History
         
Duffie Darrell Duffie Stanford Agree 6
Is the net effect on revenues negative because of the impacts on avoidance and earning efforts? That's not clear, but probably not.
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Agree 7
Labor elasticity should be less than 1 and might in fact go either way. Federal Revenue could be used in helpful ways.
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Agree 6
Bio/Vote History
         
Einav Liran Einav Stanford --- ---
---
Bio/Vote History
Joined 11/2013 Agree 6
 
Fair Ray Fair Yale Strongly Agree 10
This would not put us on the bad part of the Laffer curve.
Bio/Vote History
         
Finkelstein Amy Finkelstein MIT --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Agree 8
 
Goldberg Pinelopi Goldberg Yale Agree 6
A 1% increase seens too small to impact hours worked, productivity or consumption in the top bracket.
Bio/Vote History
         
Goldin Claudia Goldin Harvard Agree 2
There are some good estimates showing that higher taxes at the top nets more income. Labor SS response is low as is falsification of income
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Did Not Answer
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Agree 8
CBO's analysis indicates that the Bush tax cuts reduced revenue so presumably undoing part of this decrease in rates would increase revenue.
-see background information here
Bio/Vote History
         
Hall Robert Hall Stanford Uncertain 3
Close call. Depends on enforcement efforts. Prior to 1986, taxpayers in the high bracket seemed to be willing to buy inefficient shelters.
Bio/Vote History
         
Hart Oliver Hart Harvard --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Agree 5
I don't think that effort response to a modest increase in taxes ( from a low base) is very high
 
Holmström Bengt Holmström MIT Agree 8
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Did Not Answer
Bio/Vote History
         
Hoynes Hilary Hoynes Berkeley --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Agree 10
Given base MTR, any distortion to taxable income would be offset by the rise in revenue.
 
Judd Kenneth Judd Stanford Agree 7
Some activities will change little, such as labor supply, but some will increase tax avoidance efforts. My guess is a weak revenue increase.
Bio/Vote History
         
Kaplan Steven Kaplan Chicago --- ---
---
Bio/Vote History
Joined 11/2013 Agree 8
At a 35% marginal tax rate, we are not at the point where a 1% increase in tax rates will decrease revenues.
 
Kashyap Anil Kashyap Chicago Strongly Agree 7
Bio/Vote History
         
Klenow Pete Klenow Stanford Agree 7
Forecasting the forecast of others (Chetty, Saez, ...).
-see background information here
Bio/Vote History
         
Lazear Edward Lazear Stanford Agree 8
Revenue would rise, but the important question is what happens to growth, not revenue. The goal is not to maximize the size of government.
Bio/Vote History
         
Levin Jonathan Levin Stanford Agree 6
Saez puts top of the Laffer curve above 60%, suggesting we're well to the left.
Bio/Vote History
         
Maskin Eric Maskin Harvard Agree 8
Bio/Vote History
         
Nordhaus William Nordhaus Yale Strongly Agree 8
Weight of evidence on personal tax rate with some reservations about other (state and local) taxes and other interactions.
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Strongly Agree 7
It is doubtful such a small tax increase would materially affect behavior.
Bio/Vote History
         
Rouse Cecilia Rouse Princeton Agree 6
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Strongly Agree 10
Based on best estimates and even with current tax code, US top rate is still significantly below revenue maximizing tax rate
Bio/Vote History
         
Samuelson Larry Samuelson Yale --- ---
---
Bio/Vote History
Joined 11/2013 Agree 9
This modest increase would still leave us with a relatively small top-bracket marginal tax rate, and the disincentives would not be ruinous.
 
Scheinkman José Scheinkman Princeton Strongly Agree 6
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Agree 4
Bio/Vote History
         
Shapiro Carl Shapiro Berkeley --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Agree 9
Empirical evidence on this point is strong.
 
Shimer Robert Shimer Chicago --- ---
---
Bio/Vote History
Joined 11/2013 Uncertain 5
Substantial scope for tax shifting, in addition to the usual labor supply arguments.
 
Shin Hyun Song Shin Princeton Agree 7
Bio/Vote History
         
Stock James Stock Harvard Agree 4
Bio/Vote History
         
Stokey Nancy Stokey Chicago Strongly Agree 9
There is a Laffer Curve, but 35% is to the left of the peak.
Bio/Vote History
         
Thaler Richard Thaler Chicago Strongly Agree 8
The Laffer curve should have stayed on the napkin.
Bio/Vote History
         
Udry Christopher Udry Yale Strongly Agree 9
Bio/Vote History
         
Zingales Luigi Zingales Chicago Strongly Agree 8
The negative effect on growth would have to be huge to offset the tax revenues raised.
Bio/Vote History
         

Question B Participant Responses

Participant University Vote Confidence Comment Bio/Vote History
Acemoglu Daron Acemoglu MIT Strongly Disagree 6
More comprehensive increases in taxes and reduction in tax expenditures, or preferably systematic means testing of SS-Medicare are necessary
Bio/Vote History
         
Alesina Alberto Alesina Harvard Strongly Disagree 10
Bio/Vote History
         
Altonji Joseph Altonji Yale Disagree 8
Broad based tax reform and reductions in projected expenditures, particularly on health, will be required.
Bio/Vote History
         
Auerbach Alan Auerbach Berkeley Strongly Disagree 9
Bio/Vote History
         
Autor David Autor MIT Disagree 6
Unfortunately, not enough income there to do it (I think)
Bio/Vote History
         
Baicker Katherine Baicker Harvard Uncertain 6
I think depends on how shortfall defined (current law vs. current policy, etc.) - but not a good idea in either case, esp. in longer run.
Bio/Vote History
         
Banerjee Abhijit Banerjee MIT --- ---
---
Bio/Vote History
Joined 11/2013 No Opinion
I was confused by the word ordinary. As against what?
 
Bertrand Marianne Bertrand Chicago Uncertain 5
Bio/Vote History
         
Brunnermeier Markus Brunnermeier Princeton --- ---
---
Bio/Vote History
Joined 11/2013 Disagree 7
 
Chetty Raj Chetty Harvard Disagree 9
Bio/Vote History
         
Chevalier Judith Chevalier Yale Uncertain 5
My back of the envelope suggests no, but I think a PF person would have more of the numbers at their disposal.
Bio/Vote History
         
Currie Janet Currie Princeton Disagree 8
Medicare (and to a lesser extent Social Security) are big drivers of the deficit, so changes are necessary to bring it under control.
Bio/Vote History
         
Cutler David Cutler Harvard Uncertain 5
I don't know offhand what the estimates are at different elasticities.
Bio/Vote History
         
Deaton Angus Deaton Princeton Uncertain 1
I don't know the magnitudes well enough to know whether or not this is likely to be the case.
Bio/Vote History
         
Duffie Darrell Duffie Stanford Uncertain 2
It is a difficult question (for me at least).
Bio/Vote History
         
Edlin Aaron Edlin Berkeley Disagree 8
According to CBO estimates, maybe if rates go sky high. According to Gale and Auerbach, deficit far too big. links on my webpage.
-see background information here
Bio/Vote History
         
Eichengreen Barry Eichengreen Berkeley Disagree 7
Bio/Vote History
         
Einav Liran Einav Stanford --- ---
---
Bio/Vote History
Joined 11/2013 Uncertain 3
 
Fair Ray Fair Yale No Opinion
I don't know the tax distribution data well enough.
Bio/Vote History
         
Finkelstein Amy Finkelstein MIT --- ---
---
Bio/Vote History
Joined 11/2013 No Opinion
This one feels like a quiz; I'm sure this is knowable if one looks up the elasticity estimates and size of deficits but I haven't done so.
 
Goldberg Pinelopi Goldberg Yale Disagree 6
Tremendous uncertainty around these projections. Also, given the complexity of the tax code, taxpayers find ways around specific rate hikes
Bio/Vote History
         
Goldin Claudia Goldin Harvard Uncertain 2
Don't have any idea if it would be one-half. That seems rather large. But if it were true -- let's do it.
Bio/Vote History
         
Goolsbee Austan Goolsbee Chicago Did Not Answer
Bio/Vote History
         
Greenstone Michael Greenstone Chicago Disagree 4
Unknown elasticities and unclear baseline (do other Bush tax cuts expire? future of Medicaid/Medicaid?) make it very difficult to evaluate
Bio/Vote History
         
Hall Robert Hall Stanford Disagree 5
There's a CBO-style "current law" assumption here that is hard to deal with--does the AMT come back in its old form or continue to be cut?
Bio/Vote History
         
Hart Oliver Hart Harvard --- ---
---
Bio/Vote History
Joined 11/2013 Uncertain 5
I think that an increase in taxes can reduce the deficit but I am not confident about the magnitudes
 
Holmström Bengt Holmström MIT Disagree 7
Bio/Vote History
         
Hoxby Caroline Hoxby Stanford Did Not Answer
Bio/Vote History
         
Hoynes Hilary Hoynes Berkeley --- ---
---
Bio/Vote History
Joined 11/2013 Agree 6
I am not certain of the magnitudes, but we know that raising the highest MTR can raise significant revenues.
 
Judd Kenneth Judd Stanford Strongly Disagree 9
The rich don't have that much money, and would respond with substantial increases in tax avoidance activities.
Bio/Vote History
         
Kaplan Steven Kaplan Chicago --- ---
---
Bio/Vote History
Joined 11/2013 Strongly Disagree 9
Without restrictions, I would expect meaningful marginal tax rate increases to be followed by higher pending leaving the deficit intact.
 
Kashyap Anil Kashyap Chicago Disagree 7
Too many ways to shift income. If the rate becomes very high labor supply will probably fall. Everyone will have to pay to cut the deficits
Bio/Vote History
         
Klenow Pete Klenow Stanford Strongly Disagree 7
Doesn't look close according to these calculations (see link).
-see background information here
-see background information here
Bio/Vote History
         
Lazear Edward Lazear Stanford Disagree 8
Using the President's numbers, the gaps are too big, more so if we go beyond 10 years. Scoring of tax increase do not show big deficit cuts.
Bio/Vote History
         
Levin Jonathan Levin Stanford Strongly Disagree 7
How could this be? CBO projects $1tr annual deficits. Annual income tax revenues from $500+k earners are now $350bn. We're going to 3x this?
Bio/Vote History
         
Maskin Eric Maskin Harvard No Opinion
I don’t know the numbers well enough to say.
Bio/Vote History
         
Nordhaus William Nordhaus Yale Disagree 8
Close call. With 10 yr CBO baseline def of $6 tr, indiv inc taxes of $19 tr, top 1% pays 40% of that, 50% rate. If really "purely," then no.
-see background information here
Bio/Vote History
         
Obstfeld Maurice Obstfeld Berkeley Disagree 7
The budget shortfalls are too large to be covered on this income tax base. Both tax and entitlement reform will be needed.
Bio/Vote History
         
Rouse Cecilia Rouse Princeton Uncertain 6
Bio/Vote History
         
Saez Emmanuel Saez Berkeley Disagree 9
Enough income at top to cut deficit by 50%+ but need to go after it after base broadening not solely by increasing current ordinary top rate
Bio/Vote History
         
Samuelson Larry Samuelson Yale --- ---
---
Bio/Vote History
Joined 11/2013 Disagree 6
There is not enough income there to cut the deficit I half with feasible and reasonable top-bracket tax rate increases.
 
Scheinkman José Scheinkman Princeton Disagree 4
Bio/Vote History
         
Schmalensee Richard Schmalensee MIT Strongly Disagree 4
Bio/Vote History
         
Shapiro Carl Shapiro Berkeley --- ---
---
Bio/Vote History
Joined 11/2013 Agree 6
The deficit will fall as we grow out of the Great Recession, and there are enough people in the top bracket to close the rest of the gap.
 
Shimer Robert Shimer Chicago --- ---
---
Bio/Vote History
Joined 11/2013 Disagree 6
 
Shin Hyun Song Shin Princeton Disagree 7
Bio/Vote History
         
Stock James Stock Harvard Disagree 4
Bio/Vote History
         
Stokey Nancy Stokey Chicago Strongly Disagree 8
The top bracket is a very small group. Maybe with the top 10% of the income distribution. But how are we defining "budget shortfalls"?
Bio/Vote History
         
Thaler Richard Thaler Chicago Disagree 7
Only a small part of the puzzle. Tax reform anyone?
Bio/Vote History
         
Udry Christopher Udry Yale Agree 6
Bio/Vote History
         
Zingales Luigi Zingales Chicago Strongly Disagree 10
cumulative deficit is 10 trillion. taxable income at the 35% 600 billions. to halve the deficit you will need 100% tax rate. Impossible
Bio/Vote History
         

10 New Economic Experts join the IGM Panel


For the past two years, our expert panelists have been informing the public about the extent to which economists agree or disagree on important public policy issues. This week, we are delighted to announce that we are expanding the IGM Economic Experts Panel to add ten new distinguished economists. Like our other experts, these new panelists have impeccable qualifications to speak on public policy matters, and their names will be familiar to other economists and the media.

To give the public a broad sense of their views on policy issues, each new expert has responded to a selection of 16 statements that our panel had previously addressed. We chose these 16 statements, which cover a wide range of important policy areas, because the original panelists' responses to them were analyzed in a paper comparing the views of our economic experts with those of the American public. You can find that paper, by Paola Sapienza and Luigi Zingales, here. The paper, along with other analyses of the experts' views, was discussed during the American Economic Association annual meetings, and the video can be found here.

The new panelists' responses to these statements can be seen on their individual voting history pages. Our ten new economic experts are:

Abhijit Banerjee (MIT)
Markus K. Brunnermeier (Princeton)
Liran Einav (Stanford)
Amy Finkelstein (MIT)
Oliver Hart (Harvard)
Hilary Hoynes (Berkeley)
Steven N. Kaplan (Chicago)
Larry Samuelson (Yale)
Carl Shapiro (Berkeley)
Robert Shimer (Chicago)


Please note that, for the 16 previous topics on which these new panelists have voted, we left the charts showing the distribution of responses unchanged. Those charts reflect the responses that our original panelists gave at the time, and we have not altered them to reflect the views of the new experts.

We have also taken this opportunity to ask our original panelists whether they would vote differently on any of the statements we have asked about in the past. Several experts chose to highlight statements to which they would currently respond differently. In such cases, you will see this "revote" below the panelist's original vote. We think you will enjoy seeing examples of statements on which some experts have reconsidered.

As with the 16 previous statements voted on by new panelists, these "revote" responses are not reflected in the chart that we display showing the distribution of views for that topic: all the charts for previous questions reflect the distribution of views that the experts expressed when the statement was originally posed.

About the IGM Economic Experts Panel

This panel explores the extent to which economists agree or disagree on major public policy issues. To assess such beliefs we assembled this panel of expert economists. Statistics teaches that a sample of (say) 40 opinions will be adequate to reflect a broader population if the sample is representative of that population.

To that end, our panel was chosen to include distinguished experts with a keen interest in public policy from the major areas of economics, to be geographically diverse, and to include Democrats, Republicans and Independents as well as older and younger scholars. The panel members are all senior faculty at the most elite research universities in the United States. The panel includes Nobel Laureates, John Bates Clark Medalists, fellows of the Econometric society, past Presidents of both the American Economics Association and American Finance Association, past Democratic and Republican members of the President's Council of Economics, and past and current editors of the leading journals in the profession. This selection process has the advantage of not only providing a set of panelists whose names will be familiar to other economists and the media, but also delivers a group with impeccable qualifications to speak on public policy matters.

Finally, it is important to explain one aspect of our voting process. In some instances a panelist may neither agree nor disagree with a statement, and there can be two very different reasons for this. One case occurs when an economist is an expert on a topic and yet sees the evidence on the exact claim at hand as ambiguous. In such cases our panelists vote "uncertain". A second case relates to statements on topics so far removed from the economist's expertise that he or she feels unqualified to vote. In this case, our panelists vote "no opinion".

The Economic Experts Panel questions are emailed individually to the members of the panel, and each responds electronically at his or her convenience. Panelists may consult whatever resources they like before answering.

Members of the public are free to suggest questions (see link below), and the panelists suggest many themselves. Members of the IGM faculty are responsible for deciding the final version of each week’s question. We usually send a draft of the question to the panel in advance, and invite them to point out problems with the wording if they see any. In response, we typically receive a handful of suggested clarifications from individual experts. This process helps us to spot inconsistencies, and to reduce vagueness or problems of interpretation.

The panel data are copyrighted by the Initiative on Global Markets and are being analyzed for an article to appear in a leading peer-reviewed journal.

chicago booth